Future of the Accounting Profession

Tom Nierop, Columnist Faces

For young and aspiring accountants who want to have an attractive, respected and exciting profession, these are interesting times. One of these weeks, at the urgent request of the government, ‘the profession’ presents a package of policy measures to ensure the quality and independence of the audit. If the government finds the new measures inadequate, it will proclaim measures itself. A well-known empirical rule suggests that politicians do not usually operate with scalpels and precision equipment, but with larger tools.

Confidence in the audit currently reached a low point. This is caused by several factors: the accumulation of critical AFM reports, ‘absence’ in the run-up to the credit  crisis, inadequate inspections and incorrect statements by companies and housing associations, headline news about help with bribery, estate trades and the alleged tax antics concerning the Amstelveen headquarters.

Though this may be unreasonable for the vast majority of accountants who do their job with enthusiasm, commitment, knowledge and integrity, when a popular television program such as ‘De Wereld Draait Door’ devotes ten minutes to you and Youp van ’t Hek does not only write an entire column in the NRC about your profession, but keeps mocking about accountants for weeks afterwards. Then as a sector you have got a serious problem. Serious, convincing measures are needed to avoid politicians to intervene.

Contrary to what is often thought and said – unfortunately memories are short – the problems are far from new. Since the early nineties of the last century (international) regulators criticized the excessive commercialization of the accounting profession and the following lack of criticism in the audit. Since then, many measures have been incurred, including external supervision by the AFM in the Netherlands, serious efforts by the professional association NBA and in 2013 the statutory restraining of advice to audit clients and the mandatory rotation of audit firms in ’Public Interest Companies’ (PIC’s). But it does not seem to be enough. In either case, that is what politicians think.

Eventually, it will be all right, but time is running out. Some even claim that it is ‘five past twelve’. It is going to be interesting. Especially for the younger auditors, whose future is at stake. Unfortunately, experience shows that young (beginning) auditors are not intensively engaged in public discussions about their profession. Understandably, because as far as I can remember I did not do that as a student either – a long time ago, in another discipline. Still, it would be good to follow the discussions and developments, focusing for example on Accountant.nl.  and even better, to get actively involved.

Roughly speaking, the choice is between two directions. The first direction is a structural intervention in the organization and business model of the accounting firms. According to proponents of this direction, the purely commercial setting creates wrong (financial) incentives. The direct financial relationship between auditor and audited – who does not only pay the auditor but also chooses him – could lead to the temptation to maintain the client by being not ‘too hard’. In addition, the urge to maximize the income of the partners may prompt to save too much on the (control) costs and hence on the quality of the control. The remedy for these so-called ‘perverse’ incentives would be to get rid of or strictly regulate the direct link between the auditor and audited. Another option is to maximize the currently, in principle, unlimited maximization of the partner’s income and to introduce an obligation to put the ‘excess profits’ in quality measures.

The second approach is to neutralize the misdirected incentives in the existing business and commercial model by even stronger adverse incentives: administrative measures (e.g. external persons in the board, a leading role of directors in the audit) and / or solid sanction systems to prevent wrong behaviour. That road has been followed so far, and it is also the way most people prefer. Of course, a combination of the two main directions is possible too.

Plenty of choice. In recent years, dozens of measures and solutions are proposed on Accountant.nl. As always the case is with long-running debates, this debate has also a tendency to run in circles. Arguments in favour and against are exchanged and by the time the stock of arguments is consumed, everyone has already forgotten the first argument and the whole party starts again.

Go ahead and try. The interests are considerable, both the commercial interests and the broader interests of the profession. The working group of mostly young accountants that started in May and is busy formulating plans – has a heavy responsibility. It is time to decide. But the rest of the young accountants, including those who still study, must not stand idly by. Keep an eye open, take a clear position and make your voice be heard. And do not be afraid. ‘Stupid’ questions are often the best.  There is much at stake.